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Service sector remains upbeat despite slowdown

The pace of the recovery in the service sector slowed in the three months to August, but optimism continued to rise, according to the latest CBI Services Sector Survey.

The CBI survey predicts that there will be a return to growth in the coming quarter. Key findings of the report include:

optimism in consumer services rose strongly, with 48% of firms saying they were more optimistic than three months ago, and 4% saying they were less optimistic;

among business and professional services firms, 44% said they were more optimistic than three months ago, whilst 13% said they were less optimistic;

63% of professional service firms expect the rate of business expansion to increase in the year ahead, and 36% do not, giving a balance of +27%, the lowest since May 2013 (+14%), but well above the average of +3%.

The survey found that there has been a growth in numbers employed in the business and professional services sector – which includes accountancy, legal and marketing firms – reaching its highest rate in nearly seven years.

Investment intentions for the year ahead in the consumer services sector, which includes hotels, bars, restaurants, travel and leisure firms, are also robust.

However, the survey of 215 firms revealed there is increased concern that the availability of professional and other staff is likely to limit business expansion over the next year.

Katja Hall, CBI deputy director-general, said: “The slowing in the pace of growth and profits in the service sector reflects our view that momentum in the economy will ease in the second half of the year. But this doesn’t necessarily mean a gear change in the recovery.”

Hall welcomed the news that firms were bullish about hiring, but warned that skills shortages could dent their ambitions.

She said: “Employing more staff and planning to increase investment are positive steps in the quest for sustainable growth. However, skills shortages mean it is increasingly hard for firms to find and hire the right people. It’s important that business and government address this issue together, to put the economy of the future on the right footing.”